Chancellor Philip Hammond’s first (and last) Spring Budget was, as expected, thinner than his predecessors’. But that did not stop him from delivering some surprises.
One of these was the introduction of a 25 per cent overseas transfer charge applying to qualifying recognised overseas pension schemes.
The move was a bold step by the Chancellor and, since the Government implemented the changes straightaway without consultation, there could be a lot of confusion for advisers and clients going through the transfer process.
It is important to note, though, that while the announcement was somewhat out of the blue, a closer look reveals there are several notable exemptions to the rule.
Initially people were concerned the overseas transfer charge would arise on all recognised transfers to Qrops requested on or after 9 March. However, not all jurisdictions will be affected in the same way and the impact within the European Economic Area will be limited.
Take Hannah, for example. She currently lives in the UK but has decided to retire and move to warmer climes in Malta. If she wants to transfer her UK-registered pension, from which she is not already drawing benefits, to a Maltese Qrops, she can do so with no overseas transfer charge since Malta is part of the EEA.
However, say Hannah’s love of Vegemite changes her mind and she decides to move to Australia within five tax years of the original transfer, her Qrops will be subject to an overseas transfer charge.
That said, there will be no charge when a member moves to another country after five full tax years from the transfer from the registered pension scheme.
For instance, Andy has lived in Spain for a number of years. After getting married, he decides to transfer his UK-registered pension to a Qrops in Gibraltar. The transfer does not attract a charge because Gibraltar is part of the EEA and he resides in Spain.
A couple of years later in 2019 he gets the opportunity to move to South Africa. Andy has always considered living in South Africa and convinces his wife to move with him to Cape Town. Since he has moved to a non-EEA country and it is within five full tax years of the transfer to a Gibraltar Qrops, the move will trigger an overseas transfer charge.
After two years in South Africa, Andy decides to move back to Spain. Since he is moving to an EEA country within five years of the original transfer from the registered pension scheme he will be able to apply for a refund of the overseas transfer charge.
It is also important to remember if a client has paid an overseas transfer charge, and the charge has not become repayable, then the client will not be liable to the charge again.
So the news is not as drastic as it initially appeared. Still, anyone currently transferring their UK- registered pension to a Qrops could be left in limbo. It is vital they see their adviser to ensure it is still the right decision.
Rachael Griffin is tax and financial planning expert at Old Mutual Wealth